Has a debt collection agency threatened you with legal papers? They hope this will scare you into paying up as fast as you can but is this threat real? What can you do if you can't pay the debt? Federal law limits actions that a debt collector can take. This article discusses what you can do if a debt collector has promised to start a debt collection lawsuit.
Written by Attorney Kimberly Berson.
Updated August 30, 2023
Debt collectors: What they can and can’t do.
Federal and state laws restrict debt collectors from engaging in certain debt collection practices. They can’t harass, abuse, or unfairly treat a consumer when attempting to collect a debt. Consumers are people who incur debt for personal, family, or household purposes. But this doesn’t mean collectors can’t engage in any collection efforts. Typically, a creditor seeking to collect an unpaid debt has a right to under a legally binding contract. Because of this, it isn’t a good idea to ignore debt collection efforts.
Creditors do have rights and can take legal action.
Typically, creditors attempting to collect a consumer debt are exercising their rights under a legally binding contract. The contract usually requires the consumer to make payments. When the consumer doesn’t make the required payments, a breach of contract has occurred. The agreement might outline the consequences of a breach. It may also detail remedies available to the creditor.
Other consumer debts include rent, mortgage payments, medical bills, student loans, car loans, and other household debts. If you don’t make the payments due on consumer debt, the contract will allow the creditor to take action. Some creditors may notify credit bureaus of the default in making payments. The credit score on your credit report will be negatively affected.
Other contracts, such as a car loan, may allow the creditor to repossess the car if you fail to make payments. Similarly, if you don’t make your mortgage payments, the lender will probably be allowed to start foreclosure proceedings. In a foreclosure action, the lender is seeking a court order to sell the real estate to pay off the mortgage. Creditors of unpaid medical bills or unpaid student loans will probably have the right to sue you to recover the payments owed. If the creditor gets a judgment against you, the creditor may be able to garnish your wages to satisfy the judgment.
Although creditors have a right to contact a consumer to collect a debt, they must comply with the law. The Federal Debt Collection Practices Act (FDCPA), state laws, and the Federal Trade Commission (FTC) impose strict parameters on the collection efforts of a debt collector.
Collection agencies must abide by certain restrictions.
The FDCPA makes it illegal for debt collectors to use abusive, unfair, or deceptive practices when collecting debts. Debt collectors are companies that collect debts for other people. Many states have similar laws protecting consumers from creditor harassment. The FTC makes sure debt collectors comply with the FDCPA.
The FDCPA only applies to the collection of consumer debts and not business debts. It prohibits a debt collector from:
Harassing consumers to collect a debt;
Using abusive behavior to collect a debt;
Misrepresenting the debt or the amount you owe;
Claiming you will be arrested if you don’t pay up;
Threatening to do anything illegal; and
Threatening to do something they don’t intend to do.
For example, debt collectors can’t threaten to sue you if the deadline to bring a debt collection lawsuit has passed in your state. This deadline is called a statute of limitations. If the statute of limitations has expired, the debt collector can’t sue you because the debt is time-barred. Sometimes, debt collectors purchase time-barred debts (old debts). They can attempt to collect those debts, but they cannot sue you to collect them.
Debt collectors can’t lie to you to get you to pay immediately. For example, they can’t threaten to sue you if they don’t intend to sue you. Debt collectors have to hire an attorney to bring a lawsuit, and legal services are expensive. So, the threat of legal action may be empty. They may have no intention of suing you. Lying about bringing a lawsuit against you is considered a deceptive practice and is prohibited by FDCPA.
What are my rights against certain debt collection efforts?
The FDCPA regulates debt collectors and debt collection activities in the following ways:
When debt collectors can call you: They can’t call you before 8 a.m. or after 9 p.m. unless you agree to it.
Where they can call you: They can’t call you at your place of employment if you indicate you can’t receive phone calls at work.
The number of times they can call you: They can’t repeatedly call you over a short time.
How they speak to you: Collectors can’t use profanities or obscene language.
Threats they make: They can’t be illegal. They can’t threaten to physically harm you or your family.
If you believe a debt collection agency or creditor is engaging in abusive, deceptive, or harassing behavior, you should report the violation to the FTC. The FTC is the law enforcement body that will investigate violations. Also, if you believe that the debt collection agency is violating state law, you should notify your state attorney general’s office. You can also file a complaint with the Consumer Financial Protection Bureau (CFPB). This is a government agency that makes sure banks, lenders, and other financial institutions treat you fairly.
You can sue a debt collector that has violated FDCPA. You need to file the legal action within one year of when the debt collector violated the law. You may need the legal services of an attorney to help you bring this action.
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What can I do before a debt collection lawsuit is filed?
If a debt collector contacts you about an unpaid debt, they must provide validation information about the debt. They are required to do this during the first phone call or in writing after your first communication. You should receive the written validation letter within five days after your first contact. If you haven’t received the validation, request a written validation letter from the collector. The letter should state:
How much you owe;
The name of the creditor you owe it to;
Where to get the name of the original creditor; and
Steps to take if you don’t think you owe the debt.
If you don’t think you owe the debt, send the collector a dispute letter (called a letter of verification). You have to send this letter within 30 days of receiving the validation letter. You can also send a dispute letter if you don’t believe you owe the amount the collector is claiming you owe. Once the collector receives the verification letter, they must stop collection efforts. They can resume collecting after they send you written verification of the debt. Written verification could be the original bill showing the amount of money you owe.
If you want to avoid a lawsuit, pay the debt if you can. If you can’t pay the full amount owed, contact the creditor and negotiate a payment plan. It is best to do this before a lawsuit. Legal services are costly. Creditors may be more willing to settle the debt for less than owe before they bring legal action.
If you owe several debts, you might consider debt management or debt settlement. A debt management plan entails working with an agency to consolidate your debt payments. A debt settlement involves settling your debts for less than you owe.
Bankruptcy will help relieve you of most debts. Most individuals file Chapter 7 or Chapter 13. Chapter 7 will allow you to discharge your debts and keep assets you can exempt. Chapter 13 is a repayment plan that lasts 3–5 years. You might want to speak to an attorney to discuss your options.
Beware of scammers!
When communicating with debt collectors, you should beware of scammers. These are people who pose as debt collectors to get information from you about your personal finances. This is a common scam. Don’t give out your bank account or other personal information when dealing with a debt collector. Scammers may send you a document that looks like a court summons or an official government document. If you are not familiar with the debt collector, get their contact information. Ask for their name, the name of the company, address, and phone number. Then use this information to verify it's not a scam.
What can I do after I’ve been served with court papers?
If you receive a summons and complaint, a lawsuit has been started. A process server might serve you with the legal papers. Note the date that you need to answer the legal action. You should respond to the lawsuit. If you don’t, a default judgment will probably be entered against you. If a creditor gets a judgment against you, they may seek a court order to garnish your wages or bank account to satisfy the judgment. Federal benefits are exempt from wage garnishments. But, this exemption doesn’t apply when collecting to pay delinquent taxes, certain student loans, and child support. Federal benefits include Social Security benefits.
You should check the statute of limitations for bringing a collection lawsuit in your state. The statute of limitations is the deadline to start the legal action. You can contact the state attorney general’s office for this information. A lawsuit started after the statute of limitations has passed is grounds to dismiss the action. The debt is time-barred and is unenforceable.
Your response to the lawsuit will probably be determined by your financial situation. You can negotiate a settlement with the creditor at any point. Legal services are costly. So, the creditor may settle the action to cut the cost of legal fees. If you can, seek legal advice on how to prepare an answer. The bar association in your area may offer free legal assistance.
Remember to file the answer to the complaint with the court and serve it on the plaintiff-creditor.
Dealing with debt collectors can be scary, and being threatened with legal action is upsetting. But you aren’t alone. The law protects you from abusive collection activities. The first step is to verify you owe the debt and that the person contacting you is a legitimate debt collector. Second, document the actions of the debt collector. If they engage in any illegal behavior, contact the appropriate authorities. Third, if you receive a summons and complaint, respond to it.
You may need help from an attorney. You can negotiate a debt settlement at any time. Settling before a lawsuit usually results in more favorable terms. Settlements are reached during litigation too. You also may want to explore bankruptcy. It is a great vehicle to get rid of debt.